This Five Forces analysis of Meta Platforms (formerly Facebook Inc.) reveals issues that affect the company’s position as one of the top players in the social media and digital advertising market. Michael Porter developed the Five Forces analysis model to evaluate the external factors that influence companies’ industry environments. In this business analysis case, such external factors influence the level of competitive rivalry that Facebook experiences in the global market. As one of the biggest competitors in the multinational industry, the company enjoys the benefits of high revenues and popularity among users and advertisers. This position helps ensure the fulfillment of Facebook’s (Meta’s) vision statement and mission statement. However, to keep this industry position, the company must counteract the negative effects of the external factors shown in this Five Forces analysis of the business and the online display advertising and social media industry environment.
This Five Forces analysis of Facebook (Meta Platforms) puts emphasis on customers and substitutes as the strongest forces based on external factors in the social media and marketplace business. Nonetheless, all external factors in the industry environment affect Facebook’s business performance relative to the performance of competitors, like the digital advertising and social media businesses of Google (Alphabet), Microsoft’s LinkedIn, X (Twitter), and Snap (Snapchat), as well as the marketplace businesses of Amazon, eBay, and Walmart Marketplace.
Summary: Five Forces Analysis of Facebook (Meta Platforms)
Facebook’s industry position as one of the world’s leading online social media businesses provides a variety of benefits. However, this Five Forces analysis shows that the company must keep satisfying customers to reduce the potential negative effects of competition and substitution against its social networking websites, mobile apps, and related offerings. The following are the strengths or intensities of the Five Forces that influence Facebook’s (Meta’s) business:
- Competitive rivalry or competition: Moderate force
- Bargaining power of buyers or customers: Strong force
- Bargaining power of suppliers: Weak force
- Threat of substitutes or substitution: Strong force
- Threat of new entrants or new entry: Weak force
Recommendations. Based on this Five Forces analysis, Facebook retains its industry position partly due to new entrants’ and suppliers’ weaknesses. Such weaknesses impose minimal barriers to Meta’s success. However, customers significantly influence the business in terms of their ability to transfer to other companies that offer social media services (for members/users) and online advertising services (for advertisers). Also, substitutes have the potential to eat away Meta’s market share. Thus, the external factors in this Five Forces analysis highlight the need for strategies and management approaches that continually satisfy the users of Facebook’s social networking website and mobile apps. A recommendation is to implement such strategies and approaches to retain clients and market share. In addition, it is recommended that Meta implement innovative strategies that make its display advertising services more attractive than substitutes. This competitive move should minimize the negative influence of substitution in the industry environment. Moreover, improving Facebook’s (Meta’s) operations management strategy can enhance business efficiency in addressing competitive challenges illustrated in this Five Forces analysis.
Competitive Rivalry or Competition with Facebook (Moderate Force)
Even with its leading social media market position, Facebook experiences the significant impact of competition. This element of Porter’s Five Forces analysis model determines how competitors affect Meta’s industry environment. The following external factors lead to the moderate force of competitive rivalry against Facebook:
- Small number of large competitors (weak force)
- Moderate variety of firms (moderate force)
- Low switching costs for users and advertisers (strong force)
There are only a small number of large companies or businesses that offer online display advertising services similar to that of Facebook. For example, YouTube offers targeted online advertising services. In the context of this Five Forces analysis, the small number of large competing firms exerts a weak competitive force against Facebook. However, the variety of these firms helps attract advertisers, thereby imposing a moderate force in the industry environment. In addition, the low switching costs (low difficulty of transferring from one provider to another) make it easier for advertisers to shift away from Meta toward competitors. These external factors create the moderate force of competition. Based on this element of the Five Forces analysis, competitive rivalry is a major consideration in Facebook’s management and strategic formulation.
Bargaining Power of Facebook’s Customers/Buyers (Strong Force)
Customers impose pressure on Facebook in terms of what they want from the company. The impact of consumers or buyers on the online display advertising industry environment is examined in this element of Porter’s Five Forces analysis model. The following external factors lead to the strong force of customers’ bargaining power over Facebook’s social network and related services:
- High substitute availability (strong force)
- Low switching costs for users (strong force)
- High demand from buyers (weak force)
Facebook provides social media services to its members/users. However, advertisers are Meta’s primary source of revenue. These advertisers have the option to use substitutes, which are readily available. For example, instead of advertising on Facebook, customers can advertise on television, radio, and print media, all of which are widely available and effective in reaching target audiences. In this Five Forces analysis, such a condition exerts a strong competitive force against the business, despite the social network’s strong popularity and the competitive advantages detailed in the SWOT analysis of Facebook (Meta). In addition, low switching costs are an external factor that makes it easy for customers to shift away from the company’s social networking websites, mobile apps, and advertising services. This factor exerts a strong force on Meta’s business. In contrast, the high demand for online advertising buffers the potential shift of advertisers and slightly weakens the bargaining power of customers. This element of the Five Forces analysis shows that Facebook must prioritize its customers to ensure its competitive advantages.
Bargaining Power of Meta’s Suppliers (Weak Force)
Suppliers are among the factors that influence Facebook’s social network and display advertising services. This element of the Five Forces analysis shows how suppliers affect firms and the industry environment. The following external factors lead to the weak bargaining power of suppliers over Facebook:
- Moderate size of individual suppliers (moderate force)
- Large population of suppliers (weak force)
- High overall supply (weak force)
Examples of Facebook’s supply needs include servers and related computing and network technology/equipment, as well as office supplies. Some suppliers are large firms that exert a moderate force on Meta. However, these supplies are available from many manufacturers. In this Five Forces analysis, the large supplier population is an external factor that exerts a weak competitive force on Facebook. Also, the high overall supply minimizes the influence of individual suppliers on the company. Based on these external factors in the Five Forces analysis, suppliers are a minimal competitive issue in Meta’s social media and online advertising industry environment. However, the company can improve its management of supplier relationships through suitable strategies for the supply chain. These strategies can contribute to Facebook’s (Meta’s) corporate social responsibility fulfillment involving suppliers, among other stakeholders.
Threat of Substitutes or Substitution against Facebook (Strong Force)
Substitutes can reduce Facebook’s business performance and create challenges in the social media and display advertising industry environment. The impact of substitution is considered in this element of Porter’s Five Forces analysis. The most notable external factors that create the strong threat of substitutes against Facebook are as follows:
- Low switching costs for advertisers (strong force)
- High substitute availability (strong force)
- Moderate cost of substitutes (moderate force)
It is easy for advertisers to transfer to alternatives or substitutes, such as television, radio, and print advertising, instead of paying for Facebook’s social media advertising. In Porter’s Five Forces analysis framework, this condition exerts a strong competitive force on Meta. Also, the high availability of substitutes strongly affects the industry environment. Nonetheless, many of these substitutes, especially television advertising, are more expensive than Facebook’s advertising services. This cost difference limits the threat of substitution and leads to a moderate force on the company. This element of the Five Forces analysis shows that the threat of substitution is one of the major issues affecting Facebook’s (Meta’s) generic competitive strategy and intensive growth strategies.
Threat of New Entrants or New Entry against Facebook (Weak Force)
The social media giant faces the negative effects of new entrants in the industry environment. This element of the Five Forces analysis covers the competitive impact of new firms on the business. In this external analysis case of Meta and its social network and related products, including Facebook, the following external factors lead to the weak threat of new entry:
- Low switching costs for users and advertisers (strong force)
- High cost of brand development (weak force)
- High cost of customer loyalty (weak force)
New entrants exert a strong competitive force against Facebook, due to the low switching costs (low difficulty) of advertisers in moving from one service provider to another. However, this Five Forces analysis also shows that it is difficult to develop a popular and reliable social media brand like Facebook. Furthermore, it is difficult to build the loyalty of advertisers and users/members. This external factor weakens the threat of new entry against Meta. Based on this element of the Five Forces analysis, new entrants are a minimal issue in Facebook’s strategic formulation processes.
References
- Ahmad, Z., Soroya, S. H., & Mahmood, K. (2023). Bridging social capital through the use of social networking sites: A systematic literature review. Journal of Human Behavior in the Social Environment, 33(4), 473-489.
- Kumar, V., & Nanda, P. (2022). Approaching Porter’s five forces through social media analytics. International Journal of Services Operations and Informatics, 12(2), 184-200.
- Meta Platforms, Inc. – About Meta.
- Meta Platforms, Inc. – Form 10-K.
- Meta Platforms, Inc. – We’re committed to keeping people safe and making a positive impact.
- U.S. Department of Commerce – International Trade Administration – Software and Information Technology Industry.